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MEPs also rejected the reduction of the emission cap by 2.4 percent annually, and backed the lower 2.2 percent reduction as proposed by the European Commission.

The centre-right EPP group opposed the plan to curb industry benefits.

British Conservative Ian Duncan, rapporteur for the reform, said the vote was "a major step forward" towards meeting the EU's climate change targets, as laid down in last year's Paris agreement on climate change.

“We have sent a strong signal to the council that we are serious about the fight to stop global warming," he said in a press release, referring to the European Council, where member states meet.

Ivo Belet, in charge of the dossier on behalf of the EPP group, called the reform "balanced".

"This reform includes the necessary incentives to further reduce carbon dioxide emissions, while at the same time it sufficiently protects those industrial sectors that are exposed to international competition," he said in a statement.

MEPs voted to scrap 800 million permits and also doubled the capacity of the market stability reserve (MSR) - a kind of bank where surplus allowances are stored temporarily - from 12 to 24 percent of the total amount.

But MEPs from other groups said those measures were insufficient.

The liberal group said in a statement they "reluctantly" backed the reform, which didn't do enough to "bring all industrial sectors on a realistic pathway towards a zero carbon economy, consistent with the Paris agreement".

"If these measures don't do the job, we must stand ready for further reforms in the mid-term review," said Swedish liberal Fredrick Federley, who was in charge of negotiations in the parliament's industry committee.

The socialist group called the vote a "setback in the fight against climate change" and accused centre-right MEPs from the EPP group of "crushing" an ambitious reform of the ETS system.

The Green group and Italy's Five Star Movement, which is part of the eurosceptic EFDD group, voted against the reform.

In a next step, EU environment ministers are expected to reach a position on ETS reform later this month. Parliament and council will then enter into negotiations and agree on the final shape of the legislation.